After months of acrimony, the largest bank deal ever moved toward a resolution Tuesday evening as directors of First Interstate Bancorp and Wells Fargo & Co. met separately to approve their merger.

According to sources familiar with the situation, First Interstate directors were expected to vote first to terminate the institution's friendly merger agreement with First Bank System Inc. of Minneapolis. The First Bank bid collapsed this week after an unfavorable decision from the Securities and Exchange Commission.

Although the meetings ended after American Banker's deadlines, sources with detailed knowledge of the proceedings said there was virtually no chance that the Wells offer would be rejected by either party.

At Tuesday's closing market prices, Wells would pay $11.55 billion for Los Angles-based First Interstate, the most ever for a bank.

The agreement calls for Wells to exchange two-thirds of a share for each First Interstate share. Wells finished trading Tuesday at $228.50, up $5.75, giving each shareholder of First Interstate a value of $152.18 when exchanged. First Interstate finished up $3.25 at $147.

First Bank System closed at $50.25, up 25 cents, so its offer to First Interstate would be worth $130.65 per share, or $9.9 billion.

Sources close to the situation said revised proxy filings would probably be made with the SEC by early March. Shareholder votes are likely to be held that month, and the deal could close in the second quarter.

The deal would put Wells firmly in charge. Paul Hazen, chairman of the San Francisco-based bank, would head the combined bank and First Interstate chairman William E.B. Siart - who bitterly opposed the takeover - would leave, according to knowledgeable sources.

According to the sources, the agreement calls for the combined bank to locate significant corporate offices in both Los Angeles and San Francisco.

This would be consistent with earlier offers by Wells officials to operate dual headquarters in the two cities. Wells had made the offer to allay concerns by Los Angeles politicians and business leaders about the economic impact on Southern California from merger-related job losses and office closings.

At a San Francisco hearing on the merger - one of two held by the central bank Tuesday - Wells Fargo president William Zuendt told the Federal Reserve that his organization expects to eliminate no more than 5,000 First Interstate jobs in California, half the job losses First Bank warned would result. Wells would close about 350 First Interstate branches in the state.

However, the deal was not uniformly well received in California, where civic leaders told the Federal Reserve that hundreds of branches and thousands of jobs would be lost if Wells acquired First Interstate.

Ventura Mayor Jack Tingstrom said a merger with Wells Fargo would result in more than 9,000 employees being laid off.

"To stand by and watch this happen is to watch 9,000 families go through despair," he told the Fed in a hearing on the merger in Los Angeles. "This is not good for the customer or the community. It is only good for Wells Fargo."

The Fed can block a deal that wouldn't meet the convenience and needs of the community. It also can reject the deal if any of the banks involved have poor records on community reinvestment.

While Wells and First Interstate's management worked feverishly this week to finish up a merger agreement, other talks have been held with First Bank over the terms of its withdrawal from the bidding war. The Minneapolis bank's agreement called for it to receive $200 million of breakup fees and other penalties if the agreement were broken.

Wells Fargo has argued in suits in Wilmington, Del., that this agreement was invalid, and that First Bank was not due these fees. First Bank, meanwhile, has filed a counter suit in Los Angeles charging Wells Fargo with "tortious interference" with First Bank's merger agreement.

Sources close to the matter said that Wells hopes to have both suits dropped, in return for some form of payment to First Bank. A source close to Wells has said the bank is willing to give First Bank "most of what it wants" if the bank makes "a clean break."

The sources said it was not clear if these legal issues could be resolved by the time the merger agreement is approved and announced.

This article was reported by Barton Crocket in San Francisco, Daniel Kaplan in New York, and Jaret Seiberg in Los Angeles.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.